12/12 Full draft available here: drive.google.com/file/d/1LLdJ...

11/ We revisit the city-size premium using our estimated location effects and find an elasticity of 0.007. This is 2-3 times lower than estimates not controlling for establishment composition.

10/ Alternative approaches that don’t separate between the role of establishments and the “pure” location effect attribute ~30% of spatial disparities to the location (in both France and the US).

9/ MAIN RESULTS: location effects account for only 2-5% of spatial wage differences. Worker and establishment composition for 30% and 17%, respectively. Remaining half stems from the co-location of high-ability workers & high-paying firms, particularly in high-paying locations.

8/ We provide a series of tests that confirm the validity of our design, including quartile by quartile event study graphs, placebo tests and a survey of entrepreneurs.

7/ Identification: “double-movers” design, leveraging both workers who move across establishments and locations, and establishments that relocate across CZs.

6/ We estimate a three-way fixed effects model that accounts for (a) worker ability, (b) establishment productivity / pay policy, and (c) location-specific factors—such as infrastructure and agglomeration forces.

5/ We present a stylized spatial equilibrium model with firm and worker mobility. The model reproduces empirical facts, predicts sorting of workers and firms within and between locations, & generates log-linear additive wage equation.

4/ Establishments which relocate to another commuting zone replace ~50% of their workforce. Establishments relocating to a 1% higher paying location increase pay by ~0.15%.

3/ Establishments which relocate maintain the same activity, organization, and overall input composition.

2/ In both France and the US, 4% of establishments relocate every year. 25% of those moves involve a change in commuting zone (CZ).

1/ Our paper in 3 steps:

1. Characterizes establishment mobility in FRA and the US.
2. Builds a spatial model with worker and firm mobility.
3. Estimates three-way fixed effects model to decompose spatial wage differences into worker, firm, and location effects in FRA.